TEXT-S&P affirms rtgs on Banco Santander and some subs; otlks neg

Rationale

The affirmations follow our review of the wider implications for economic risk
and industry risk in the Spanish banking sector of our two-notch downgrade of
the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012. We believe banks
operating in Spain face higher credit risk, not only from their increasing
exposure to a weaker public sector, but also owing to a riskier, less
resilient private sector, which will suffer the effects of the economic
recession, austerity measures, and high unemployment.

To reflect the higher credit risk we now see in the Spanish market we lowered
our Banking Industry Country Risk Assessment (BICRA) for Spain to group '6'
from '5' and revised our economic risk score, a component of the BICRA, to '7'
from '6' (see " Various Rating Actions On Spanish Banks Due To Rising Economic
Risks," published Nov. 23, 2012)

Our view of the higher economic risks that Spanish banks face had no impact
on our assessment of Santander's stand-alone credit profile (SACP), which
remains at 'a-'. Santander has wide geographic diversification, which makes
its financial profile less exposed than domestic banks to negative
developments in its home market. We have not changed any of the factors
underlying Santander's SACP. The anchor for Santander remains at 'bbb-', one
notch above the anchor for institutions operating primarily in Spain.

We have maintained our views of the bank's "very strong" business and risk
position, "moderate" capital and earnings, "above average" funding, and
"adequate" liquidity.

Our ratings on Santander remain one notch above those on Spain. We seldom rate
financial institutions above the foreign currency rating of the country where
they are based. In the rare cases when we do, such as this one, we generally
limit the rating differential between the sovereign rating and the bank rating
to one notch, as we see a strong connection between banks' creditworthiness
and that of their country of domicile.

Outlook

The negative outlook on Santander, and consequently Banesto and SCF, mirrors
that on the long-term rating on Spain. A downgrade of the sovereign would very
likely trigger a similar action on Santander, Banesto, and SCF.

The challenging operating environment in Spain might lead us to lower
Santander's SACP in the future reflecting, for example, an even more difficult
environment in Spain or increasing risks in other important markets where the
group has operations. We might also consider lowering Santander's SACP if the
bank underperformed our profitability, capital, and asset quality
expectations, or if it made an acquisition that we believed undermined its
financial strength or significantly increased its risk profile. However, the
two-notch gap between Santander's SACP and ratings means we believe it is
unlikely that a downward SACP revision would trigger a downgrade of the bank.

Our negative outlook on Totta mirrors that on The Republic of Portugal
(BB/Negative/B). We cap the ratings on Totta at the level of the sovereign
ratings on Portugal.

An outlook revision to stable on Santander would hinge on a similar action on
Spain.